As of late 2023, global housing markets continue to exhibit robust price growth, despite a significant increase in interest rates since late 2021, according to property consultant Knight Frank. In our analysis of world cities, average prices faced a quarterly decline only in the final quarter of 2022, rebounding with a subsequent 2.7% increase.
The pillars sustaining these prices include limited housing stock, above-inflation wage growth, substantial household savings, and a scarcity of new construction. These factors collectively contribute to maintaining prices at levels that challenge traditional affordability metrics, particularly with the escalating cost of debt.
Turkish cities, Ankara and Istanbul, lead the rankings with the most substantial annual growth at 102.7% and 77.6%, respectively. Dubai secures the third position, followed by European markets Zagreb and Athens in the top five.
Conversely, European markets at the bottom of Knight Frank’s rankings face tougher conditions, with Stockholm, Bratislava, and Frankfurt all experiencing double-digit annual price declines.
Liam Bailey, Knight Frank’s global head of research, noted, “Homeowners are relieved as interest rates seem poised to decrease in 2024. However, it’s crucial to recognize that rates are expected to stabilize at levels higher than those during the pandemic. With prices on the rise, the risk of potential future declines looms due to ongoing stretched affordability.”
Despite successive quarters of rising prices, questions arise about the anticipated housing market downturn. While existing supports will continue into 2024, most major city housing markets still grapple with stretched affordability. This compels many potential homebuyers to turn to the rental market due to inadequate deposits and the possibility of high mortgage repayments.
Despite the recovery in price growth, sustained housing market recovery faces obstacles, including a revival in housing market transactions. Chief among these challenges are higher mortgage servicing costs. Although mortgage rates are expected to decrease in 2024 due to anticipated policy rate cuts, the cost of debt will settle notably higher than pre-pandemic levels, intensifying affordability pressures for households transitioning from previously cheaper deals in recent years, according to Knight Frank.